Building a strong credit history is an all-in-one step toward financial freedom and credit accessibility, whether you’re starting fresh in the US, recovering from past financial hiccups, or simply looking to establish a solid credit score. Secured credit cards are a practical way to achieve this.
At Remitly, we’re committed to supporting your financial journey, just as we simplify sending money across borders. This guide breaks down everything you need to know about secured credit cards, from how they work to how they can help you build credit.
What is a secured credit card and how does it work?
Let’s begin with the basics of secured credit cards.
Definition of a secured credit card
A secured credit card is a type of credit card backed by a cash deposit you provide upfront. This deposit acts as collateral, reducing the risk for the card issuer if you can’t pay your bill.
Basically, your deposit equals your credit limit—for example, a USD $500 deposit gives you a USD $500 limit. Secured cards are suited to people with limited or poor credit history, making them a great option for immigrants or those rebuilding credit.
The role of a security deposit
The security deposit is the foundation of a secured credit card. When you apply, you’ll need to pay this deposit, which is usually refundable. Amounts often range from USD $200 to USD $5,000, depending on the issuer and your financial situation. The deposit is used to cover unpaid balances if you default. With responsible use, like paying your bills on time, you can get your deposit back when you close the account or upgrade to an unsecured card.
Differences from unsecured credit cards
Unlike secured cards, unsecured credit cards don’t require a deposit and rely on your creditworthiness for approval. They often come with higher credit lines and rewards, but are harder to get if you lack a strong credit history. Secured cards focus on credit building, with lower limits and fewer perks, making them more suitable for beginners in the US banking system.
How a secured credit card helps build credit
Using a secured credit card responsibly can improve your credit score, opening doors to better financial opportunities. Here’s how it contributes to your credit-building journey.
Reporting to credit bureaus
Secured cards report your payment activity to the three major credit bureaus—Experian, Equifax, and TransUnion. On-time payments and low balances are recorded as positive behavior. This helps to establish or rebuild your credit profile.
Impact on credit score
Your credit score is influenced by factors like payment history (35%), credit utilization (30%), length of credit history (15%), types of credit (10%), and new credit inquiries (10%). Secured cards directly affect payment history and utilization. Paying your bill on time and keeping your balance below 30% of your limit—let’s say, USD $60 on a USD $200 limit—can improve your score. Consistent use over months can lead to noticeable progress.
Moving from secured to unsecured credit cards
With consistent, responsible use, many issuers review your account after six to 18 months to consider upgrading you to an unsecured card. This often includes refunding your deposit and increasing your credit limit. Some cards automatically evaluate your account for eligibility after seven months of on-time payments.
Benefits of secured credit cards
Secured credit cards are useful financial tools for individuals who are starting or rebuilding their credit. They provide unique benefits that can contribute to financial growth.
Establishing or rebuilding credit
Secured credit cards are a powerful tool for establishing or rebuilding credit. For immigrants new to the US or individuals recovering from financial setbacks, these cards provide a way to demonstrate reliability to lenders. Regular, on-time payments build a positive credit history, which helps to put you in good standing for future loans or rentals.
Accessibility for those with bad credit
The deposit reduces the issuer’s risk, making secured cards more accessible than unsecured ones for those with poor or no credit. Many issuers don’t require a credit check, and some accept an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number (SSN).
Financial responsibility and creditworthiness
Using a secured card encourages smart financial habits. Since your credit limit matches your deposit, you’re motivated to spend only what you can repay, reducing the risk of debt. This discipline builds creditworthiness, showing lenders you can manage credit responsibly.
Key considerations before applying
Choosing a secured credit card requires careful thought to ensure it fits your financial needs. Here are the main factors to evaluate before applying.
Typical deposit amounts
Security deposits for secured cards usually range from USD $200 to USD $5,000, though some cards allow lower amounts. For instance, certain issuers offer a USD $200 credit line with a USD $49 deposit, which can be easier for those with limited funds. Compare options as outlined below to find a deposit you can afford without straining your budget (information correct at time of writing).
| Card issuer | Minimum deposit | Maximum deposit | Key notes |
| Capital One Secured | USD $49– 200 | USD $1,000 | Some applicants qualify for USD $49/99 deposits. May increase limits with on-time payments. |
| Discover it® Secured | USD $200 | USD $2,500 | Refunds deposit after 6–12 months of responsible use |
| OpenSky® Secured Visa® | USD $200 | USD $3,000 | No credit check required |
| Citi® Secured Mastercard | USD $200 | USD $2,500 | Higher limits for larger deposits |
| Chime Secured Visa® | USD $0 | N/A | Links to your Chime checking account; no minimum deposit required |
| First Progress Prestige Mastercard Secured | USD $200 | USD $2,000 | Flexible for rebuilding credit |
Fees and interest rates
Many secured cards have no annual fee, but some charge fees like application or maintenance costs. Interest rates are often high, around 20% or more. To avoid interest, pay your balance in full each month. Compare cards to find those with low or no fees and reasonable rates. See the table below (correct at time of writing):
| Card issuer | Annual fee | APR (interest rate) | Foreign transaction fee | Other fees |
| Capital One Secured | USD $0 | 29.74% | 0% | Late payment: Up to USD $40 |
| Discover it® Secured | USD $0 | 27.24% | 0% | Late payment: Up to USD $41 |
| OpenSky® Secured Visa® | USD $35 | 24.64% | 3% | Late payment: Up to USD $41 |
| Citi® Secured Mastercard | USD $0 | 26.74% | 3% | Balance transfer: 5% or USD $5 (whichever is higher) |
| Chime Secured Visa® | USD $0 | N/A (no interest) | 0% | Fees apply for out-of-network ATMs |
| First Progress Prestige Mastercard Secured | USD $49 | 14.24% | 3% | Late payment: Up to USD $41 |
Choosing the right card issuer
Select a reputable issuer that reports to all three credit bureaus and has a clear path to an unsecured card. Look for banks or financial institutions with transparent terms and customer-friendly features, like free credit score access. If you don’t have an SSN, ensure the issuer accepts an ITIN.
Final takeaways on responsible use
Secured credit cards can be a great option if you’re looking to build your credit score. Responsible use is key, and regular, on-time payment will help to avoid fees and any negative impact on your credit score. You may consider setting up payment reminders or automatic payments in time for your due date to help with this.
After a period of consistent responsible use, you may become eligible for an unsecured credit card, which can open you up to benefits like higher credit limits, better interest rates, and rewards. With time and consistency, you can look forward to greater financial security.
FAQs
How does a USD $300 or USD $500 secured credit card work?
A USD $300 or USD $500 secured card requires a deposit of that amount, which becomes your credit limit. This deposit is held as collateral. It’s not a payment towards your balance; instead, it’s a security measure for the lender. You can make purchases up to that limit, receiving a monthly statement with your balance and minimum payment.
You still need to make regular monthly payments to pay off your purchases with the card. Responsible use, which includes making on-time payments and keeping your balance low, helps you build a positive credit history, regardless of the deposit amount. Paying in full avoids interest.
What is the recommended spending for a USD $200 credit limit?
For a USD $200 credit limit, try to keep your spending below 30% of the limit—that is USD $60—to maintain a healthy credit utilization ratio. Ideally, aim for 10% (USD $20) for optimal credit building. Use the card for small, regular purchases and pay the balance in full each month to avoid interest and boost your score.
This is prudent because credit utilization is a significant factor in calculating your credit score. A high utilization ratio signals to lenders that you may be over-reliant on credit, which can negatively impact your score. Keeping your spending low demonstrates responsible credit management and can help improve your creditworthiness.
What is the recommended duration for a secured credit card?
There’s no fixed timeline, but most people keep a secured card for six to 18 months until they qualify for an unsecured card. Issuers often review your account after a few months of responsible use, potentially upgrading you and refunding your deposit.
What happens to my security deposit?
The card issuer holds your security deposit as collateral. If you manage your secured credit card account responsibly and make all your payments on time, your security deposit will typically be returned when you close the account or upgrade to an unsecured credit card.
However, if you fail to make payments and default on the account, the card issuer may use the security deposit to cover the outstanding debt. Check the terms and conditions of your specific card to know the exact details of how and when your deposit will be returned.